Markets, Economy Ignoring Policy Shocks, Says Morgan Stanley's Skelly

• Markets have been resilient, 'looking through' policy shocks, driven by AI and a strong consumer.
• Midterm elections are identified as the next potential 'pop-up ad' that could limit market upside.
• Fed policy expectations have shifted from cuts to a more hawkish stance on short rates, but this is balanced by potential balance sheet reduction, resulting in a 'wash' for overall impact.

Daniel Skelly of Morgan Stanley notes that markets and the economy have largely ignored policy shocks over the past year, focusing instead on AI and a resilient consumer. He anticipates that the upcoming midterms might cap some market upside. Regarding the Fed, he sees a balanced outlook with hawkish short-term rate views offset by potential long-term balance sheet reduction.